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Options for taxing main residence capital gains

Resolution Foundation and abrdn Financial Fairness Trust - December 2021

This report examines the scale of rising property wealth across Britain, who has gained most from it, what the consequences are, and why these gains should be part of the debate on how to raise tax revenues.

The report finds:

  • 86 per cent above inflation house price growth over the past 20 years has delivered capital gains on home owners' main residences worth £3 trillion. These passive gains have been so huge that they represent a fifth of all wealth in Britain today.
  • House prince increases have not been evenly distributed. They have benefitted existing home-owners, and particularly those who were fortunate to buy in the late 90s and early 00s. The least wealthy third of households have gained less than a £1,000 on average, compared to an average gain of £174,000 for the wealthiest ten per cent.
  • Households headed by someone aged 60+ have seen the biggest windfalls – at around £80,000 on average – compared to an average of less than £20,000 for those under 40 years of age.

The report calls for:

  • Extending the scope of Capital Gains Tax to primary residences with a 28 per cent rate on all housing capital gains built up over the past 20 years. This could raise around £11 billion a year, with owners required to pay nothing until they exit home ownership or pass away. Setting a £50,000 allowance would mean close to half of estates not having to pay any tax, while still raising £6 billion a year.
  • Alternatively, unearned capital gains on a primary residence could no longer be covered by the Inheritance Tax residence nil rate band raising up to £4bn.

The authors acknowledge that while introducing such a tax would certainly be politically challenging, however, failing to properly tax property has led to other problems – such as falling homeownership, and higher taxes on workers and businesses.

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